Materials Management BUS 3 – 141 Quality and Specification Leveraging Technical Excellence Week of Aug 31, 2010

The Role of Quality in Supply Management

Page 3 3 How this Course supports Supply Chain Objective & Process The Right QUALITY The Right TIME The Right PLACE The Right SUPPLIER The Right SERVICE at the with the at the with the and paying The Right QUANTITY The Right PRICE

Page 4 4 Quality Defined –Performance –Features –Reliability –Durability –Conformance to specifications –Serviceability –Aesthetics –Perceived quality in the eyes of the Customer Eight (8) Quality Dimensions * * From Leenders, Johnson, Flynn, and Fearon, Purchasing and Supply Management, Thirteenth Edition, McGraw Hill Irwin

Page 5 5 Basic Assumptions The HIGHER the Quality, the higher the Customer Service, the lower the Inventory, and the lower the Cost The LOWER the Quality, the lower the Customer Service, the higher the Inventory, and the higher the Cost

Page 6 6 Highest Level Supply Chain Objective Revenue Utilization of Assets (People, Plant, Equip) Cash Inventory BALANCING keeping Customers completely satisfied and Resources optimally utilized ……. against spending the least amount of Cash and carrying the least amount of Inventory

Page 7 7 Variability requires Inventory to Compensate Supply Demand  Forecast variance  Market Conditions  Global Supply (Allocation)  Competitor Pricing  Competitor Supply  Customer Returns (Quality)  Other  Build variance  Scrap  Rework  Shortages  Delays  Other Requires excess Finished Goods and component Inventory to eliminate (minimize) impact on Customers

Page 8 8 Illustration of Process Capability vs. Product Specifications UCL LCL X USL LSL Observation Key Characteristic (dimension, functionality, delivery, etc..) The Supplier is likely to produce conforming parts all the time

Page 9 9 Illustration of Process Capability vs. Product Specifications UCL LCL X USL LSL Observation The Supplier is likely to produce a quantity of non-conforming parts Key Characteristic (dimension, functionality, delivery, etc..)

Page Applying Process Capability to Supplier Selection If a Supplier CAN miss, the Supplier WILL miss! –If a Supplier’s process consistently meets or exceeds Customer Specifications, consider the following:  Increasing spend on the items (if not Single Source)  Introducing new items to be supplied  Partnerships and collaborative design where appropriate –If a Supplier’s process misses Customer Specifications, consider:  Changing the Supplier  Changing the Specification (when possible)  Improving the Supplier (if business case justifies)

Page Other Quality Considerations –Quality is relevant far beyond product characteristics and specifications (e.g. delivery, paperwork, billing, responsiveness, etc..) –The cost of mitigating the effects of poor quality is much higher than the cost to prevent poor quality…. “Get it right the first time” –Relying on Inspection to prevent poor quality items from reaching Customers or the production line will inevitably fail. Some percentage will always escape through –Quality is a key determinant in Supplier Selection: Partnering with key suppliers as single source providers Use of approved Suppliers Qualifying Suppliers While understanding all the complexities of Quality Management and Statistical Process Control may be out of scope to Materials Management practitioners, an understanding of the critical importance of Product Quality cannot be overlooked. It is important to partner with Quality Management experts to assure that all technical and quality aspects are optimized with Suppliers

Establishing Product Specifications

Page Selected Methods of Description –By Brand Predictable quality Can be expensive Limits ability to source other Suppliers –Specification Physical or Chemical characteristics (most common) Material and Manufacturing Method By performance or function (focus is on results or end use) –Engineering Drawings Blueprints CAD output Requires Non-Disclosue Agreements (NDA) Protection of Intellectual Property

Page The Standardization Challenge Standard parts are generally lower cost, more abundantly available, provide the largest number of potential suppliers, drive efficiencies in design, and provide other benefits BUT… Unique parts often differentiate products and performance, and can provide competitive advantage to the seller

Page The Impact of Materials Specifications on Life Cycle Costs* 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% % of Dollars SPENT on the Item over Time % of Dollars COMMITED to the Item * For illustration only; numbers are approximations The Initial Development & Design is the biggest factor in Life Cycle spend While volume buying takes place to support full scale production

Page Other Design and Spec Considerations –Decisions made EARLY affect Dollars spent LATER –Whenever possible it is recommended to re-use existing components when developing new products (rather than creating numerous new components whenever creating a new subassembly) –Several software applications are available to enable designers to re- use existing components when developing new products  CAD systems are integrated with Component and Supply Management systems to minimize the amount of new Items introduced  CAD systems are integrated with Quality systems to capture performance and reliability data to determine suitability for re-use in future products –Partnering with proven Suppliers during the Design process is a major opportunity to reduce both Time To Market and Cost  Expertise in analyzing requirements and generating a list of new product ideas  Understanding of the manufacturing costs, with the dollar impact of alternative design concepts and components